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Sunday, April 3, 2011

Is the Construction Sector a contrarian play?

The Construction sector is not one of my favourites because of several reasons – lack of transparency in operations, questionable accounting practices, delay in project completion, and, worst of all, poor quality of construction.

During the later stages of the previous bull market in 2007, the sector caught the fancy of small investors, who were mesmerised by the ‘infrastructure’ story and jumped into the fray too late. The bear market of 2008 turned many dreams into nightmares. So, why am I writing about construction sector stocks? It seems investor sentiment has turned 180 degrees – from euphoria in 2007 to complete apathy in 2011.

And there may lie an opportunity for a contrarian play. Not across the sector. Definitely not in most of the ‘big boys’, who are still paying the price of their profligacy. But there are a few that are looking interesting technically. Mind you, I haven’t checked the fundamentals of any of these stocks. That’s an exercise left for the readers – who can start by analysing the respective cash flow statements.

Here, in alphabetical order, are 10 charts of construction sector stocks:

Ahluwalia Contracts

AhluwaliaCont_Apr0111

Ahluwalia Contracts hit its 52 week peak in Jul ‘10 and has been in a prolonged down trend since then. The stock is yet to find a bottom, and is trading below its falling 50 day and 200 day EMAs. Avoid.

Consolidated Construc. Cons.

ConsolidatedConstr_Apr0111

Consolidated Construction touched its 52 week high in Jul ‘10 and corrected by more than 50%. The ‘death cross’ confirmed the bear market in Nov ‘10. The stock is trying to find a bottom, and the technical indicators are suggesting a revival. A break out above the falling 50 day EMA, supported by good volumes, may provide an entry opportunity. Watch.

Gammon India

Gammon India_Apr0111

Gammon India appears to have made a double-bottom, but its recent rally has been resisted by its falling 50 day EMA. The technical indicators are hinting that the rally may continue. Watch.

HDIL

HDIL_Apr0111

The worst seems to be over for HDIL. It has moved above its 50 day EMA with volume support. Technical indicators are looking bullish. Accumulate slowly. Add on a pullback to the 50 day EMA.

Madhucon Proj.

MadhuconProj_Apr0111

Madhucon Projects has been in a down trend since Aug ‘10. The stock appears to have bottomed out, and is trying to move above its 50 day EMA. But volumes are dropping during the rally. Watch.

Nagarjuna Constr.

NagarjunaConstr_Apr0111

Nagarjuna Construction is one of the big boys that have taken it on the chin. The stock has moved up from its Feb ‘11 low, but its woes are far from over. Avoid.

Parsvnath Dev.

Parsvnath Dev_Apr0111

Parsvnath Developers fell a huge 66% from its Oct ‘10 peak. The recovery has been equally spectacular, but the stock is hesitating after retracing 50% of its fall. The technical indicators are looking overbought. A drop to the rising 50 day EMA is possible. That may be a better entry point. Watch.

Pratibha Ind.

PratibhaInd_Apr0111

Pratibha Industries has recovered sharply from a bear market, retracing more than 50% of its correction. It is looking overbought, and may undergo some correction or consolidation. Use any dips to enter.

Simplex Infra.

SimplexInfra_Apr0111

Simplex Infra. is another of the suffering big boys. An effort at consolidation followed by a break out seems to have met with strong bear resistance. Avoid.

Sobha Dev.

SobhaDev_Apr0111

Sobha Developers has made a ‘V’ shaped recovery on high volumes, and is ready to return to a bull market. Technical indicators are bullish. Use dips to enter.

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